Wärtsilä’s first-quarter sales up 17 per cent

3 May, 2002 – Finnish manufacturer Wärtsilä reported a 17 per cent improvement in net sales for the first quarter of 2002.

Wärtsilä Group’s net sales were €580.9m (€497.4m) during the quarter which saw it complete the acquisition of marine engine maker John Crane-Lips. Profit before extraordinary items was €3.6 (€4.4m) and earnings per share were €0.02 (€0.24). Last year’s operating profit included a €30m non-recurring restructuring provision.

Net financial items amounted to €0.6 (0.4m). Net financial items last year included a dividend of €8.6m paid by Sanitec. The profit before extraordinary items increased to €3.6m (€4.4m).

Capital expenditure in the first quarter totalled €12.3m (12.5m). Cash reserves amounted to €197.3m (€85.5m) at the end of the period. Interest-bearing loan capital was €198.8m (579.5m). The solvency ratio rose to 36.3 per cent (28.5) and gearing was 0.33 (1.02).

After the close of the period Wärtsilä paid à‚£215m (approx. €350 m) for the acquisition of John Crane-Lips.

POWER DIVISIONS
Net sales of the Power Divisions rose in all divisions, increasing altogether by 19 per cent. The operational EBIT was €1.4m (22.7m) and the corresponding margin was 0.3 per cent (5.1). The operating profit of the period was depressed by a provision of approximately €13m related to the project activities.

Wärtsilä reached agreement in March on the termination of engine manufacturing, engineering and related activities in Zwolle. These activities will be transferred to Trieste, Italy, and key employees will be relocated from the Netherlands to Italy to ensure that the transfer proceeds smoothly. A service and sales organization will stay in Zwolle. Manufacture of engine components will be handed over to an outside supplier, who will continue this operation in the existing premises. Approximately 320 employees will be made redundant as a result of the reorganization. The cost provision of €90m entered in the four-quarter accounts last year is expected to be sufficient to cover the costs.

Marine
The weak global economic conditions affected Wärtsilä’s order intake
during the first months of the year. However, project activity in all important vessel segments was lively compared to the quiet final quarter in 2001. Demand was most active for tankers and bulk carriers. The containership market has all but halted.

John Crane-Lips, the world’s leading supplier of marine propulsion systems, became part of Wärtsilä on 15 April 2002. The acquisition marked an important milestone for Wärtsilä’s strategy to be the leading global ship power supplier. John Crane-Lips, now renamed Wärtsilä Propulsion, will be consolidated within Wärtsilä Marine from 1 April.

Wärtsilä gained a significant order for dual-fuel engines in April. Wärtsilä 50DF engines will be supplied to an LNG carrier ordered by
Gaz de France. The vessel is the first in the world to deploy a propulsion system based on diesel technology.

Power Plants
Wärtsilä received orders related to an energy programme in Brazil during the first quarter and further orders are expected during the second quarter. The market situation in Latin America remains good and offers new opportunities. Demand is high for biofuel power plants in the Nordic countries. The bankruptcy of a large American energy company has generated uncertainty in the marketplace and hampered the deregulation of the electricity markets in several
countries.

Though slower than one year ago, the order intake was still satisfactory. The intake of gas power plant orders slowed down, mainly due to the market situation in the USA. The most significant gas power plant orders came from Russia, Hungary and Bangladesh. Orders for heavy fuel oil power plants were booked in Brazil,
Senegal, India and Russia, among others.

Service
Net sales of the Service division grew 9.5 per cent to €199.2m. The volume of service and operations agreements now covers more than 10,500 MW of Wärtsilä’s active engine base (9177 MW). The volume of O&M agreements continues to increase rapidly. Major markets in this respect were India, Saudi-Arabia and the USA.

Wärtsilä will acquire the engine repair and reconditioning business
from Metalock Singapore Ltd. The operation to be acquired, with annual net sales of approx. € 9 m, further strengthens Wärtsilä’s position as the total service provider. The transaction is subject to regulatory approvals, which are expected in May 2002.

Manufacturing and technology

Product development has concentrated on continuous improvements to existing products. Product concepts based on new technologies are being evaluated as well. Engine delivery volumes by the product factories remained at a good level.

The Group’s internal divisions Technology and Manufacturing were merged into Engine Division at the beginning of April. The main reason was to concentrate engineering and manufacturing planning and control responsibilities within the same organization.

IMATRA STEEL
Imatra Steel’s net sales decreased 2.8% compared to the first quarter last year. The market for special engineering steels continued to weaken and truck production declined further during the reporting period. Imatra Steel’s operating profit was 5.0 per cent (5.9) of net sales.

ASSA ABLOY

Wärtsilä’s holding in Assa Abloy is 10.7 per cent. The market capitalization of this holding at the close of the period was €574m and
its book value in Wärtsilä’s consolidated balance sheet was €92m.

Demand for heavy fuel oil plants is briskest in Latin America. Demand for gas power plants is not expected to reach last year’s level, principally because of the US market. Demand for biofuel power plants will increase in line with expectations.

The order book of Wärtsilä’s Power Divisions is on a satisfactory
level overall. Net sales is expected to increase this year. The result of operations is forecast to remain at the same level as in 2001. The benefits of the restructuring measures decided in 2001 and to be implemented this year will be visible in 2003. John Crane-Lips will add approx. € 170 m to the Marine division’s net sales this year. This will increase the Group’s operating profit and its effect on the Group’s earnings per share is expected to be neutral.

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